Citi Settles $15 Million Penalty With SEC Over Compliance, Surveillance Failures

"Today's high-speed markets require that broker-dealers and investment advisers manage the convergence of technology and compliance," said Andrew Ceresney, director of the SEC's division of enforcement, in a statement. "Firms must ensure that they have devoted sufficient attention and resources to trade surveillance and other compliance systems."

The New York-based bank agreed to pay a $15 million penalty.

The SEC investigation found Citi failed to review thousands of trades executed by some of its trading desks over a 10-year period. While Citi employees reviewed electronically generated reports of trades on a daily basis, technological errors meant the reports omitted several sources of information about thousands of trades.

The investigation found that Citi's failures occurred from 2002 to 2012. The bank also inadvertently routed more than 467,000 transactions on behalf of advisory clients to an affiliated market marker, which executed the transactions on a principal basis via buying or selling to the clients from its own account.

The SEC found Citi's policies and procedures to avoid these types of occurrences to not be reasonably designed or implemented. The investigation also said Citi's trade surveillance failed to detect the principal transactions for more than two years due to the bank relying upon a report that wasn't designed to capture principal transactions executed through the affiliate.

The bank voluntarily paid $2.5 million, the total profits from the principal transactions, to the affected advisory client accounts. Citi also agreed to retain a consultant to review and recommend improvements to its trade surveillance and advisory account order handling and routing.